Should a woman tending to personal care needs of an elderly person be paid more or less than a male garbage disposal worker? The government’s decision to support a pay rise for 150,000 social and community services workers delivers a well-earned boost to the pay packets of some of our most under-appreciated workers. But Fair Work Australia’s new powers to assess pay discrimination cases based on “equal or comparable work” open a can of worms.

What constitutes comparable work? Traditional economics struggles to explain the continuing gender pay gap, in large part because of the concentration of women in non-market, public-sector jobs where pay is set by decree, rather than by the forces of supply and demand. The historic undervaluation of “women’s work” – the caring responsibilities once carried out for free in the home – continues to dog women’s pay.

Men working in private-sector waste management, for example, traditionally demand and receive “compensatory pay” – extra for the unpleasantness of the job. But when women care for the elderly, handle bed pans and change soiled sheets, society says they should do it as a labour of love and respect.

Women continue to earn just 82 per cent of their male counterparts working in full-time jobs. Much of this gap – about 8 percentage points – is due to a combination of factors, including that men tend to work in higher-status jobs and work longer hours in them.

A better measure of the pay gap – that of full-time, adult, ordinary time, non-managerial, average cash earnings – puts it at a somewhat narrower 90 per cent. But how do we explain the remaining 10 percentage point gap?

Much of this is due to the different industries in which men and women work, their individual willingness to negotiate pay rises, the interrupted career paths of women as they have children, and outright discrimination.

Standard economic theory also struggles with the concept of discrimination. A firm that excluded women on the basis of sex, rather than productivity, would reduce the size of its potential labour pool by half. As a result, it would have to pay more for its male workers. Female workers – less in demand – could only sell their labour for a lower price. A firm that seized the opportunity to hire cheaper, but similarly productive, female workers would soon get a profit advantage over its discriminating rivals.

And yet, discrimination exists. Some economists say employers discriminate against women to appeal to the innate sex preferences of customers. Families would rather have a male financial adviser, or a male barrister in court. Hmm. Maybe.

A fascinating piece of research highlighting the importance of discrimination in pay setting came across my Twitter feed this week. Like Daughter, Like Father: How Women’s Wages Change When CEOs Have Daughters reflects on data from 6321 Danish firms which found male CEOs with daughters closed the workforce earnings gap by 0.5 per cent in the year after a daughter’s birth. If she was also their first born, the gap narrowed by 2.8 per cent.

The researchers said: “The first daughter ‘flips a switch’ in the mind of a male CEO, causing him to attend more to equity in gender-related wage policies.” The effect was strongest for highly educated employees – suggesting CEOs relate more to their highly educated female employees – and in firms with a smaller number of employees – where the CEO would have greater power over wage setting.

Until we begin to truly tackle society’s deep-seated attitudes towards women in work, closing the gender pay gap will remain a work in progress.

Sources: Bureau of Statistics Employee Earnings and Hours, May 2010′ and Average Weekly Earnings, May 2011; Like Daughter, Like Father: How Women’s Wages Change When CEOs Have Daughters paper by Michael S. Dahl, Cristian L. Dezso and David Gaddis Ross, published March 2011; budget.gov.au.